Intermediate Microeconomcis

Bacon or Eggs? Eggs and bacon is a good breakfast for many Jamaicans. Some people consider bacon and eggs as complements because they are often eaten together but some may think of it as substitutes because they are not often eaten together when served with pancakes. In reality the choice of bacon and eggs depends upon the individual preference with respect to bacon and eggs. To enable generalisations to be made, economist have to find good functional form which describes consumer preference precisely. If you know consumer preference you can predict the future demand for eggs and bacon. Suppose the preference for bacon and eggs can be represented by the following utility functions: Consumer 1 U(B,E)= BO.70.3 Consumer 2 U(B,E)=min(3B,E) Consumer 3 U(S, C)= 2B + E Where B is the number of bacon per week and E is the number of eggs per week Given that the three consumer face the same budget constraint of $ 100B +$200 = $4000, analyse the implication of using different preferences by answering the following. 1. Derive the demand functions (B* and E*) for each customer. (15 marks) 2. Calculate the total utility of each customer? (6 marks) 3. If the price of eggs decline by 50%, cetris paribus, illustrate the customer price offer curve and demand curve for customer 1. (8 marks) 4. Suppose the income of the consumer 2 double (prices remain at the original level) illustrate the income offer curve and Engel curves. (8 marks) 5. Is egg a normal good? explain